Oil Price Shocks: A Comparative Study on the Impacts in Purchasing Power in Pakistan

Jamali, Muhammad Bachal and Shah, Asif and Soomro, Hassan Jawad and Shafiq, Kamran ORCID: https://orcid.org/0000-0003-4157-8741 and Shaikh, Faiz M. (2011) Oil Price Shocks: A Comparative Study on the Impacts in Purchasing Power in Pakistan. Modern Applied Science, 5 (2). pp. 192-203. ISSN 1913-1844

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Abstract

The current research investigates the relationship between changes in crude oil prices and Pakistan and the macro-economy. A multivariate VAR analysis is carried out among five key macroeconomic variables: real gross domestic product, short term interest rate, real effective exchange rates, long term interest rate and money supply. From the VAR model, the impulse response functions reveal that oil price movements cause significant reduction in aggregate output and increase real exchange rate. The variance decomposition shows that crude oil prices significantly contribute to the variability of real exchange rate long term interest rate in the Pakistan economy while oil price shocks are found to have significant effects on money supply and short term interest rate in the economy. Despite these macro econometric results, caution must be exercised in formulating energy policies since future effects of upcoming oil shocks will not be the same as what happened in the past. Explorations and development of practicable alternatives to imported fuel energy will cushion the economy from the repercussions of oil shocks. Oil price shock has negative impact on the GDP and as well as economy of Pakistan.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Faculty/School / Institute/Centre: No Faculty
Faculty/School / Institute/Centre: No Faculty
Date Deposited: 17 Jan 2022 03:11
Last Modified: 17 Jan 2022 03:11
Uncontrolled Keywords: Macroeconomic performance; Oil price fluctuations; Pakistan
Fields of Research (2008): 15 Commerce, Management, Tourism and Services > 1503 Business and Management > 150399 Business and Management not elsewhere classified
Fields of Research (2020): 35 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 3599 Other commerce, management, tourism and services > 359999 Other commerce, management, tourism and services not elsewhere classified
Identification Number or DOI: https://doi.org/10.5539/mas.v5n2p192
URI: http://eprints.usq.edu.au/id/eprint/44820

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